Redundancy survival guide
Being made redundant can be a difficult time in your life.
Here are some things you can do to sort out your money when you are
What is a redundancy package?
A redundancy package include any of the following:
- A redundancy or severance payment
- A 'golden handshake' or other incentive payment
- A payment in lieu of notice
- Unused annual leave and long service leave
Accrued sick leave or personal leave is not usually paid out to
you when you leave an organisation.
People who are owed employee entitlements after losing
their job because their employer has gone into administration or
liquidation may be able to get financial help from the Australian
Government. Find out more about the Fair Entitlement
How will you be taxed?
A genuine redundancy, which consists of a payment in lieu of
notice and a possible incentive payment, has a special tax
treatment which allows some or all of your payment to be paid to
you tax free.
The tax free portion is usually:
base amount + (service amount x completed years of
For the 2016/2017 financial year the base amount is $9,936 and
service amount is $4,969. Any amounts over the tax-free portion are
taxed concessionally at a maximum of 32% (including Medicare levy)
if you are below preservation
age, or 17% (including Medicare levy) if you have reached
Amounts over the tax-free portion are taxed as employer termination
payments (ETPs). If you are aged 65 or over you are not
eligible for a 'genuine redundancy' payment and your entire payout
will be treated as an
Unused annual leave and long service leave is also
taxed concessionally, up to 32% (including Medicare levy). For more
information see the Australian Tax Office's redundancy payments
Making a redundancy
Work out how long your payout will last so you can
plan your next steps.
Prepare an emergency budget
It's easy to spend your payout but it pays to be cautious.
Unless you are retiring, your payout will have to last you until
you get another job, and this may take longer than you think.
The first thing to do is to list all your essential expenses and
add them up. These are costs such as rent or mortgage payments,
utilities, food, transport costs, insurances and other items that
are necessary expenses. Use our budget planner to create a
temporary budget, just to get you through this period of
Once you have your budget sorted you
can see how long your payout can last before you get another
If you have received a large payout, think about:
- Putting the bulk of it into a high interest savings
- Using it to make extra payments on your mortgage (if you have a
Then you can draw the money down slowly
to cover your ongoing expenses.
Paying your bills
Trying to manage bills without a regular income can be
If you are struggling to pay your loans and credit cards you can
apply for a hardship variation from your credit
If you are having trouble paying your water, phone, gas or
electricity bills, contact your utility providers and see if you
can negotiate a better repayment arrangement. See dealing with utility
bills for more details.
Here are some other webpages that can help you:
Don't forget your super
While you are not working don't forget about your super. Check
how much you have in your super fund and use our career break super
calculator to see the effect a break from work may have on your
When you have been made redundant your payout will be based on a
number of weeks or months of your ordinary time earnings. You will
also have received an amount of money for your unused annual leave.
You will not be eligible for Centrelink benefits for the period of
time you have been paid for.
For example, if you receive a payout equal to 8 weeks pay plus 3
weeks for unused annual leave, you will not be eligible for
Centrelink payments for at least 11 weeks. This is known as an
You may also have a 'liquid assets waiting period' based on the
assets you have that could be used as income. The Department of
Human Services has more information on waiting periods.
Your partner's income
If you have a partner, your partner's income will be taken into
account when working out your entitlement to income support
If your partner has a high income you may not be eligible for
income support benefits. For more information see Department of
income test for allowances.
Being made redundant may give you an opportunity to complete a
short course or pursue a new qualification. This may help you get a
If you are entitled to Centrelink benefits you may be able to
get help with the cost of retraining. See the redundancy webpage on the Department
of Human Services website
Returning to work
Finding a new job will be a relief for many people who have gone
through a redundancy. What you do next with your money will depend
on the state of your finances when you start your new job.
First sort your bills
If the bills have mounted up while you were unemployed, your
first priority will be getting back on your feet. Start with the
most urgent bills, making sure you leave yourself enough money to
cover ongoing living expenses. Be disciplined with your cash until
you have caught up with all your bills.
Money left over
If you are fortunate enough to still have some of your payout
left when you start a new job, think carefully about the
opportunities this gives you.
Here are a few ideas about what you could do with the left over
- Reduce debt - If you have any debt such as credit cards or
loans, consider paying off all or some of this debt to free up
income for savings.
- Create an emergency savings account - This can
help you deal with unexpected events in the future. See our webpage
on building an emergency fund
for tips on how to create a savings buffer.
- Start an investment portfolio - Buy some shares or
start a managed fund that you can
regularly contribute to and build your investment
- Take a break - Being out of work and searching
for jobs can be extremely stressful, so if you can afford it,
take a short break before you start your new job to recharge your
Being made redundant can be an
emotional and difficult time. It's important to keep a level head
and plan as much as possible so that you make the best of what you
have. Try to keep a positive attitude as this will show through in
job interviews and seek help if you need it.
Last updated: 30 Nov 2016